Loan Against Property in India: A Good Debt or Bad

Loan Against Property (LAP) is availed by keeping your property as a security with the bank. It can be used for multiple purposes such as business expansion, marriage expenditures, higher studies or for medical emergencies. The loan amount is decided on the property’s value and usually, the loan disbursed is 40% to 75% of the value. Since LAP is a secured loan, the rate of interest is generally lower as compared to unsecured loans.

Should You Ever Take a Loan Against Property?

A loan against property is the best option available in the market. The loan is especially beneficial for business persons. As a business owner, you may need money from time to time for purposes such as meeting working capital requirements or you may run out of money. By taking such loans, the entrepreneur can keep his property as collateral and get the money for the smooth process of business operations.

What are the benefits of taking a Loan Against Property?

Loan against property is the most recommendable borrowing option today. Loan against property offers the following benefits:

Lower Interest Rate: As these are secured loans, the rate of interest is generally lower as compared to other types of loans. Usually, lenders charge between 8.80% to 13% depending on your credit history and income. There are two type types of interest rates to choose from – fixed rate and floating rate.

Longer Tenure: These loans are available for longer tenure going up to 15 years. An extended tenure implies that you have got ample time to repay your loan.

Low EMIs: When you have an ample amount of time to repay your loan, you can opt for lower EMIs which also means a lesser financial burden on you.

Easy to get: Since a loan against property is a secured loan, banks are more willing to provide this loan. The processing of such loans is also quick. Therefore, it won’t be so hard for you to get the loan.

No prepayment charges: If you opt for a floating rate loan, you are not required to pay any prepayment charges. Hence, if you have extra savings, you can opt for prepayment.

Multipurpose Loan: A loan against property can be used for several purposes such as business expansion, home renovation, marriage, higher studies or debt consolidation.

Loan Against Property Eligibility Criteria

Age: The minimum age to apply for a loan against property is 18 years and the maximum age can go up to 70 years.

Income: For a salaried person, a net income of Rs. 40,000 or more is required. For self-employed, the minimum annual income should be Rs 3 lakh and above.

CIBIL Score: A credit score of 650 and above is essential to get a loan against property.

Business stability: A self-employed person should be in business for a minimum of 5 years and the business should be profitable.

Property value: Banks typically give LAP of 40% to 75%. It depends on the type of property – residential, commercial or industrial.

Conclusion: Every loan has its pros and cons, but a loan is a loan. If not paid back with integrity it will create a lot of problems for your financial and personal life. Hence, if you are planning to apply for LAP, make sure you first assess your repayment capacity and then go for it.